Everyone knew the second quarter was nothing to write home about, but the Federal Deposit Insurance Corp.’s Quarterly Banking Profile is truly dismal: Net income for all FDIC-insured institutions totaled $5 billion, plunging 86.5 percent from $36.8 billion in second-quarter 2007. That was the worst showing since the fourth quarter of 1991. The bulk of the decline was attributable to money center banks, but 56.4 percent of the institutions saw net earnings decline. Loss provisions jumped to $50.2 billion from $11.4 billion a year earlier.

The agency’s problem list jumped from 90 to 117 banks from March 31 to June 30, the most since mid-2003. The assets of problem banks tripled quarter-over-quarter to $78 billion; $32 billion of that came from IndyMac Bank, which remains under FDIC stewardship after failing in July. “More banks will come on the list as credit problems worsen,” said FDIC chairman Sheila Bair in a statement. “Assets of problem institutions also will continue to rise.”

With its Deposit Insurance Fund falling to 1.09 percent as of June 30, and still falling, the FDIC will consider a plan in early October to refill the fund’s  coffers and bring the ratio back to 1.15 percent within five years as required under law. The proposal will probably include a hike in the premium rates banks pay, along with “changes in the current assessment system that will shift a greater share of any assessment increase onto institutions that that engage in high-risk behavior,” according to Bair.
 
The agency is not drawing up plans to borrow funds from the Treasury. “That’s a borrowing option for the Deposit Insurance Fund,” says FDIC spokesman Andrew Gray. “We’re aware of it, but there’s nothing imminent and we’re not actively considering it. Nor are we ruling it out.”

Meanwhile, the FDIC issued a financial institution letter about liquidity risk management on August. The commonsensical guidance noted that banks “using liability-based or off-balance sheet funding strategies, or that have other complex liquidity exposures, should measure liquidity risk using pro forma cash flows/scenario analysis, and should have contingency funding plans.” It also reminds institutions about the limits on using brokered deposits for those considered less than well capitalized.

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